1. Analysing Cause and Effect

Review the table below. If the two largest bottled water manufacturers consolidated in a horizontal merger, what might the effect be on competition?

Company	Annual Sales (in millions of dollars)	Percent of Market
Nature’s Springs	1,000	25
Well Water, Inc.	600	15
BestTaste	400	10
Empyrean Isles	400	10
No-Tap Water	200	5

2. Analysing Data: Will This Merger Work?

When companies decide to merge, they must carefully evaluate how to combine their operations. Leviathan Motion Pictures wants to purchase Pipsqueak Computer Games.

• Review the table and imagine what would happen if the companies merge.

• Write a paragraph describing the challenges and the benefits.

• If you were Bob, would you retire after selling Pipsqueak, or would you want to continue running the company? Explain your answer.

	Leviathan	Pipsqueak
Head of Company	Ivana Getrich, age 60	Bob L. Head, age 30
Board of Directors	15 business executives	Bob and a couple of his friends
Publicly Owned Shares	200,000,000	250,000
Market Capitalization	$ 5,000,000,000	$ 250, 000, 000
Sales	$ 1,000,000,000	$ 10, 000, 000
Production Capacities	4 in California, 1 in NewYork	1 in Austin
Employees	15, 000 worldwide	150 in Austin

3. Donna is presenting a SWOT analysis of her travel firm. Complete the table below with the expressions in quotes. (The first has been done for you). Discuss the results with your partners. What makes the company vulnerable in sense of being taken over?

“We have some very good locations for our travel agency shops in cities all over Europe”

“There may be an economic slowdown next year, and travel is one of the things people cut back on first.”

“We are big enough to negotiate very good prices with hotels and airlines.”

“Internet booking of travel is increasing, and we want to get into this.”

“We need to improve staff training – we have a new computer system but some of the staff can’t get the most from it.”

“There are some very good online travel companies already established. They may challenge our position.”

“We have high staff turnover.”

“Consumers are looking for more exotic places to go on holiday, and we are planning to offer these destinations.”

Strengths	Weaknesses	Opportunities	Threats
good locations

Critical thinking

1. The buyer’s planning and implementation of an acquisition programme perspective typically involves some steps. The steps are given in the wrong order. What order you think is a correct one? Share your opinion with other students. Use firstly, secondly, thirdly, finally.

1. Analyse projected economic and financial gains to be achieved by the acquisition.

2. Assemble an acquisition team (managers, attorneys, accountants, and investment bankers) and begin the search for acquisitions candidates.

3. Conduct detailed bidding and negotiations.

4. Conduct a due diligence analysis of prime candidates.

5. Conduct initial negotiations and valuation of the selected target.

6. Develop acquisition objectives.

7. Hold the closing.

8. Identify sources of financing for the transaction.

9. Implement the integration of the two entities.

10. Obtain all shareholder and third-party consents and approvals.

11. Prepare for the closing.

12. Select the structure of the transaction.

13. Structure the legal documents.

14. Take care of post-closing tasks and responsibilities.

2. In what ways might a vertical merger in the oil industry influence gas prices?

Project work

Design a New Merger

Each merger has both advantages and disadvantages. Follow the steps below to design a new merger that attempts to avoid the worst disadvantages and to capitalize on the most important advantages. You can imagine merging any companies in any industry, but try to make sure your creation makes economic sense.

Step 1. Break into small groups. In your group, draw up a list of advantages and disadvantages of a merger.

Step 2. Discuss how the advantages and disadvantages would affect the ability of a business to earn a profit. Choose the three advantages and three disadvantages that your group feels have the most impact.

Step 3. Brainstorm possible ways to avoid the disadvantages and make the most of the advantages. Remember that in brainstorming any idea is allowed, no matter how crazy or simple it might sound.

Step 4. Sort through your brainstorming ideas. Use them to develop a new ‘ideal’ merger.

Step 5. Make a presentation of your findings. Share your ideas with the rest of the group, and compare your efforts to those of your groupmates.